~ Views on what's happening in and around the Yard

Daily Archives: February 28, 2015

I’m an economist, so an occasional desire to discuss things about the economy is excusable. I also spent a lot of my career working on the compilation of economic statistics. But, enough about me. Let’s look at poor, old Jamaica. News this week reported that the economy has seen a second consecutuve quarterly decline in national output/income/production, as measured by those three-letters, GDP. The reported decline was small, and I would assume that the margin of error may render the number somewhere between +/- 0.5 percent.

A couple of weeks ago, financial analyst, Aubyn Hill, wrote a piece about the fiscal bind that Jamaica is facing: spending is sharply down, relative to what it should be, but so too is revenue collection. In the aritmentic of budgets, however, that means that the government created a bigger surplus than projected, and that is good in terms of IMF performance criteria. Tick, for Jamaica.

What Mr. Hill pointed to, amongst other things, how companies are financing themselves by not paying taxes. This is familiar behaviour when economic conditions are tight, and as Mr. Hill points out, it’s equivalent to what governments and big firms do, by delaying payments to others. That is a problem apart from others in the economy, but it’s no less important. Cash is tight, so hold on to what you have. However, we need to be a litle careful. Tax collections do not happen automatically, with funds coming directly from bank accounts, but taxpayers must actively make payments. That ability to have discretion in compliance is a problem, because the incentive is always to delay or not pay at all. Take a good read of the reports of HSBC and its tax evasion schemes. Jamaicans may not be salting funds away in Switzerland, but they know a way to save money when they see one. For that reason, it’s sometimes hard to know what the tax revenue data tell us about economic activity: it could be high, but cash flow is tight, so paying tax slowly is a good thing for a firm or individual; it could be low, and with good complicane is merely reflecting lower renenues due. We always need to know the effort being made by the tax authorities, and saying that “We are working hard” is not enough.

So, we are unsure about what the tax data tell us about the economy’s growth.

But, other data point in one direction, that growth is happening, or activity is increasing. Tourist arrivals are up, and so too is employment. Inflation is moderating, though it still remains high compared to our main partner, the USA. Tourism and Entertainment Minister, Wykeham McNeil, reported this month that for 2014, arrivals were up 3.6 percent, with another year of over 2 million stopover visitors. Crusie passenger were up just over 12 percent, giving about 3.5 million visitors in 2014. Arrivals were especially strong from Europe (+11 percent), with Canada doing well (+5 percent) and the US trailing (+2 percent).

Mining and quarrying, plus manufacturing, also declined. But, construction grew by just over 1 percent, and services grew by just under 1 percent.

It’s a pity that the PIOJ felt compelled to fall one side or the other regarding growth. Truth is, the economy is staggering along its well-worn anaemic path–plus or minus 1 percent is about the modern norm. We are not shooting up to anywhere, and we are not plummeting headlong anywhere.

Many people would find it strange that the economy didn’t grow in the last quarter, as Christmas usually gives a boost. But, as I’ve said often, Jamaica likes to tilt backwards, and let its sun rise in the west and set in the east.